WRAP: Finance Committee regroups to map way forward on Viceroy, SARS

Parliament’s Standing Committee on Finance had to regroup to map a way forward after a marathon of submissions from National Treasury and finance sector regulators on South Africa’s most talked about corporate sagas.

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Finance Committee regroup to map way forward on Viceroy, SARS

Cape Town – Parliament’s Standing Committee on Finance had to regroup to map a way forward after a marathon of submissions from National Treasury and finance sector regulators on South Africa’s most talked about corporate sagas on Tuesday.

Political moves in which the future of finance institutions hung in the balance got ahead of committee members who were expecting to grill SA Revenue Service commissioner Tom Moyane on the Hogan Lovells-assisted internal report which exonerated former chief officer for business and individual tax Jonas Makwakwa.

The committee did, however, get to pose questions to Capitec Bank, the South African Reserve Bank, the Financial Services Board and the National Credit Regulator on matters affecting Capitec and VBS Mutual Bank.

Parliament’s Standing Committee on Finance debated the credence which South Africans ought to give a report by Viceroy Research into allegations of practices such as manipulating financial books on the part of Capitec Bank and Steinhoff.

National Treasury head of tax and finance sector policy Ismail Momoniat told the committee that he was not shy to express Treasury’s misgivings about the nature in which the report came to light from Viceroy, a foreign organisation with virtually no regulatory restrictions on its work in the country.

Economic Freedom Fighters MP Floyd Shivambu was a lone voice in his view that if there was merit to the claims in the Viceroy report, it could not be dismissed.

Capitec CEO Gerrie Fourie told the committee that Viceroy was not regulated, did not have its structure disclosed and was not audited. In his presentation to the Standing Committee on Finance, SARB registrar Kuben Naidoo raised concerns including deficient compliance culture, weak asset and liability management, potentially illegal municipal depositions and poor quality in regulatory reports.

The Reserve Bank told the committee that it warned VBS of the risk attached to municipal deposits that it allowed on more than one occasion but said these practices continued.

Last year National Treasury issued an instruction to municipalities to discontinue these deposits.

The committee opted to postpone its meeting with SARS to allow newly appointed acting SARS commissioner Mark Kingon to familiarise himself with the issues the committee needed an update on, including Makwakwa and a point of department of KPMG’s “rogue unit” report.

The committee is expected to reconvene on the matter by mid-April.

Finance committee grappling with Viceroy status

Cape Town – Parliament’s Standing Committee on Finance grappled with the status of Viceroy Research, an organisation which released explosive reports on two financial institutions in SA, Capitec Bank and Steinhoff.

National Treasury’s head of tax and finance sector policy Ismail Momoniat said on Tuesday that while the allegations in the Viceroy Report were being looked at by various institutions, the status of Viceroy as a company made it difficult for South Africa to hold the organisation or its report responsible.

He said because Viceroy is a foreign organisation, it was not beholden to some of the rules imposed on local organisations when it came to reporting on the governance of financial institutions.

A Treasury official read out a statement from Viceroy in which it said that its reports were compiled “in the public interest” and that these reports should not be considered as trade advice.

Economic Freedom Fighters chief whip Floyd Shivambu told the committee that it should avoid being preoccupied with the correctness of Viceroy’s role, especially if there is truth to Viceroy’s report.

“These presentations are not helpful. Instead of dealing with the substance of what Viceroy is presenting, everyone is dramatising the supposed lack of integrity of Viceroy. These are substantial arguments they are raising and no one can avoid that,” said Shivambu.

FSB probing Viceroy claims against Capitec

Cape Town – The National Credit Regulator and the Financial Services Board gave accounts of VBS Mutual Bank and Capitec Bank before Parliament’s Standing Committee on Finance on Tuesday morning.

The committee sat to get to the bottom of governance questions for the two beleaguered financial institutions as the two finance regulators gave their own accounts for their compliance to financial sector regulations.

VBS Mutual Bank is currently under curatorship over liquidity concerns related to municipal withdrawals. NCR CEO Nomsa Motshegare said her organisation’s experience of VBS Mutual Bank was that they were always on time when it came to paying their renewal fees on time.

“Banks own 81.9% of R1.73 trillion debtors book of consumer credit in South Africa. VBS Mutual Bank has only 0.05% of share of the banks’ credit book. Capitec Bank has 3.24% of the banks’ share of debtors’ book. VBS lends to consumers in rural areas and townships,” said Motshegare.

She said in 2017, 90 complaints were received from consumers regarding Capitec Bank’s compliance and that 86% of these complaints were resolved.

Motshegare said the nature of complaints against banks related to reckless lending, outstanding balances and terminations from debt review.

“In Capitec multiple loans being issued to a consumer within a short space of timer were discovered. This conduct is not necessarily in contravention of the National Credit Act, but concerns raised were about potential risks to consumers and the bank,” said Financial Services Board deputy executive officer Jurgen Boyd.

He said the board had to take into account the number of accusations levelled against Capitec when assessing it for compliance in its ongoing investigations.

“We have received complaints of insider trading and false statements. We are restrained in what we can disclose. We have a jurisdiction to investigate matters relating to the governance of financial institutions,” said Boyd.

He said the FSB is currently in the process of studying Capitec’s responses to reports into the matters where they have been mentioned. He assured the committee that the FSB would assess the bank’s compliance thoroughly.

“Shorting is not, in and of itself, illegal but it is important to understand the motive of anyone who says anything in this regard. We have issued summonses and will interrogate persons that we think have information relevant to our investigation,” he said.

The Reserve Bank told the committee that it had been warned of the risk attached to municipal deposits that it allowed on more than one occasion but said these practices continued.

Last year National Treasury issued and instruction to municipalities to discontinue these deposits.

Naidoo said in September 2015 and September 2016 it warned VBS Mutual Bank against its practices where it related to the municipal deposits.

He said in spite of efforts to turn things around for VBS, the bank did the opposite.

“VBS was warned against reliance placed against the ten largest depositors, with municipalities the largest. VBS was alerted against the increasing sectorial concentration of municipalities and worsening liquidity mismatch positions,” Naidoo said.

The SARB said in August of 2017 VBS was advised to seek alternative liquidity contingency plans in the event of total municipality deposit outflow.

Naidoo said the bank failed because its management repeatedly failed to heed the Reserve Bank’s advice.

“Not only did they fail to heed our advice and reduce the risk that they were exposed to, they went in the opposite direction. We have asked them repeatedly to apply for a commercial banking license to allow them more scope than a mutual bank and to allow us more room for supervision,” he said.

Capitec CEO casts shade over short seller Viceroy

Cape Town – Capitec Bank CEO Gerrie Fourie told Parliament’s Standing Committee on Finance that much of the South African financial services market was better off for the arrival of Capitec.

He also said the bank provided credit to clients responsibly.

Fourie questioned the structure of Viceroy Research as an institution, in the bank’s defence against the organisation’s report which hints at Capitec cooking its books, as well as other companies such as Steinhoff.

Fourie told the committee that it only granted credit through a model based on client behaviour, affordability and revenue source.

He maintained that the South African unsecured market was still very young but that banking in the country was generally well regulated.

“Credit is only provided to formally employed, salaried individuals. The system centrally controls the credit granting model and the model is dynamic and easily updated with economic variables,” Fourie said.

He put paid to the fact that key individuals at Viceroy Research were two Australian citizens (Aidan Lau and Gabriel Bernarde) and a British citizen (Fraser Perring). He said the group was linked to at least three hedge funds and had no known or disclosed regulators.

Capitec said it was already sufficiently regulated by at least seven state and sector organisations, including the SA Reserve Bank, the Financial Services Board, the Johannesburg Stock Exchange and the Financial Intelligence Centre.

In contrast, Capitec said, Viceroy was not regulated, did not have its structure disclosed and was not audited. The bank said Viceroy Research engaged in among others shorting the stock of a company before issuing a report on it and insisting on independent investigation.

Gordhan plans sweeping changes at SOEs as SARS suspends Moyane

Meanwhile Public Enterprises Minister Pravin Gordhan is planning sweeping changes for troubled state-owned enterprises as he tackles their many management and financial failings.

“Every day, as we do the right things, and there’ll be more of that
coming in the next three to four weeks, that will signal our intent,”
Gordhan told Bloomberg in an interview. “I think we’re on the edge of a transition.”

He said that “virtually every entity that we are supervising, or are responsible
for, is going to have changes as far as the board is concerned”.

“If you take out
some of the negativity and some of the negative people, immediately your
operations at that entity change. Your revenue changes, therefore your
financial situation begins to actually improve. And then your financial
credibility changes as well, so your ability to borrow changes,” Gordhan said.

Breather for SARS amid Moyane’s suspension

Cape Town – Chairman of Parliament’s Standing Committee on Finance Yunus Carrim has proposed that its meeting with acting SARS commissioner Mark Kingon be deferred to the first two weeks of Parliament after the legislature’s constituency recess.

Carrim told the committee members that he has already contacted Kingon about this request. This comes the morning after President Cyril Ramaphosa placed commission Tom Moyane on suspension on Monday evening.

Carrim said the decision to place Moyane on suspension and appoint Kingon as a temporary replacement would inevitably change the plans of the standing committee. He said he wanted to give the committee and Kingon a fair opportunity to prepare for a productive meeting.

“Should we consider calling off this afternoon’s meeting? [The] commissioner is now suspended. This morning from 05:30 I got SMSes. Unfortunately I was dictating a letter and there is nothing phenomenally new to say. If we agree, I could draft a statement.

“Mr Kingon has been around and has been at meetings although he does not speak much,” Carrim said.

Carrim said he contacted Kingon upon finding out that he would replace Moyane at SARS in an acting capacity and asked him about his willingness and availability to meet the committee. He said Kingon’s response was possible and that he was eager to meet the committee soon.

“He has contacted me to say that he will cooperate with the committee and said he would like to meet us as soon as possible. But we felt it would not be fair to call the acting commissioner this afternoon.

“I would like to suggest that we defer that to take place within the first two weeks of when we come back,” Carrim said.

Carrim said that it was axiomatic that the committee would welcome the president’s decision and added that the committee urges the disciplinary processes into any implicated SARS officials be be swift and decisive.

Cape Town – South African corporate scandals will be the order of the
day in Parliament on Tuesday, as the standing committee on finance
rolls up its sleeves for a full day of hearings into the imbroglios at
Steinhoff, KPMG, VBS Mutual Bank, Capitec and the SA Revenue Service.

The committee will start by receiving briefings on Capitec Bank and VBS Mutual Bank on Tuesday morning. VBS has been placed under curatorship
by the SA Reserve Bank over liquidity concerns related to withdrawals
by municipalities from the bank, while Capitec will be questioned on the Viceroy report.

US-based short seller Viceroy Research claimed the bank was a “loan shark” with bad debts, allegations Capitec
strenuously denied. The bank accused the short sellers of
shoddy research and wanting to force the bank’s share price down.

Later on Tuesday, the committee will turn its attention to what has been
happening at the SA Revenue Service, KPMG and embattled retailer
Steinhoff.

The committee specifically wanted to look into the matter of former top SARS official Jonas Makwakwa, who resigned last week. He
was replaced, as chief officer of business and individual tax, with
Mark Kingon. Kingon has since been named acting Commissioner of the tax
agency, after Tom Moyane was suspended on Monday night.

Makwakwa
is still being investigated by the Hawks for corruption and money
laundering, related to suspicious payments made into his bank account in
2016.